Ethereum’s Merge, four months later

What do computers, cryptocurrencies and the internet have in common? Their impact on climate change of course, which is why the second largest cryptocurrency Ethereum took the monumental decision in September last year to switch to a ‘proof of stake’ verification model, reducing its carbon impact by an estimated 99.5%. As we approach the four-month anniversary of this transition, it is important to go through the story of the Merge and evaluate the impact this has had, both in terms of the technical execution of the transition and the environmental benefits it has achieved.

Crypto’s impact on climate change

Cryptocurrencies inherently require a massive amount of energy consumption to operate, due to their processing-intensive ‘mining’ exercise of verifying transactions on a publicly available chain of transactions, known as the blockchain. As the countless crypto farms around the globe race to solve complex mathematical equations for the reward of small currency amount each time, they fulfil the critical operation of providing a ‘proof of work’ for crypto transactions. Studies have found that Bitcoin, in particular, has a mining network which requires an energy consumption larger than entire countries, such as Argentina and the Netherlands.

The Merge

To combat this, Ethereum last September introduced a much more sustainable consensus methodology to replace the energy demanding ‘proof of work’ necessity for verifying transactions. Using a ‘proof of stake’ mining method, a computer is chosen to create a new block randomly, as long as it holds a certain amount of the cryptocurrency, known as a ‘stake’. This significantly reduces the intensive computational work of mining farms competing against each other. The act alone has been estimated to have reduced the world’s electricity demand by an incredible 0.2%.

Was this successful?

 In terms of the technical execution of the transition, also known as The Merge, it can be acknowledged that it was a success. The transfer of the verification process was carried out seamlessly and the energy savings generated by the new model have been substantial, equivalent to the entire energy consumption of the Republic of Chile.

 However, having invested a lot of time and money to build computer farms best equipped to mine cryptocurrencies, many crypto miners’ answer to the merge was simply to switch to mining other cryptocurrencies, such as Bitcoin, rather than discontinuing their operations. While many do, however, attempt to reduce their carbon impact by using green energy, the story of the merge highlights the ongoing challenge of addressing the environmental impact of the cryptocurrency industry, as well as the need for continued investment in sustainable solutions.

Of note, not all cryptocurrencies fall within this category, as some virtual currencies like Ripple or Stellar do not require mining at all, and therefore do not share the same energy consumption requirements as better-known ones like Bitcoin.

Key Takeaway

Ethereum’s transition to the ‘proof of stake’ verification model, known widely as the merge, represents a significant positive step towards addressing the environmental impacts the cryptocurrency industry has on our planet. The technical execution of the largest shift in the crypto world since its inception was implemented successfully and the energy savings generated, by the new model, are substantial. Nonetheless, in real terms, the carbon impact of the industry remains concerning and underlines the importance for continued investment in sustainable green solutions.

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